Should You Claim CCA on a Rental Property? Recapture and the Decision (2026)

Capital cost allowance (CCA) is the depreciation the CRA lets you deduct on a rental building. Claiming it lowers tax now, but if you sell the building for more than its undepreciated capital cost, it is recaptured as ordinary income, so the real question for an investor is whether claiming it pays off. This page covers that decision: how recapture works, a worked example, and the situations where claiming tends to help or hurt. It is part of WealthNorth’s guide to investment property financing. The CCA rules themselves (classes, rates, first-year rules and how to calculate the claim) are in the guide to CCA on rental property, and the CCA depreciation calculator works out a year-by-year schedule.

CCA in brief

• What is depreciated: the building, not the land. The purchase price is split between them, often using the property tax assessment’s ratio or an appraisal.
• Rates: set by each CCA class, listed below; CCA on rental property covers the first-year rules in detail.
• Optional: you choose how much to claim each year, from nothing up to the maximum.
• No rental losses: Capital cost allowance (CCA) is optional and is worked out after combining the net income or loss of all your rental properties: it can bring that net rental income down to zero, but it can't create or increase a rental loss.
• Reported on Form T776, along with rental income and expenses; see how rental income is taxed.

The class rules, from the CRA’s Guide T4036:

• Most buildings acquired after 1987 are Class 1, depreciated at 4% a year on a declining balance, unless they belong to another class.
• Most buildings acquired before 1988 are Class 3 or Class 6.
• The parts that make up the building, such as wiring, plumbing, heating equipment and lighting fixtures, go in the building's class.
• Furniture, household appliances and other equipment used in the rental are Class 8, at 20%.
• Fences are Class 6, at 10%.
• Land isn't depreciable: only the building's share of the price, and of the buying costs, goes in a class.
• Generally, in the year you buy, you can claim CCA on only half of your net additions to a class (the half-year rule), and only once the property is available for use; property that qualifies for the accelerated or reaccelerated investment incentive is the exception.
• The half-year rule doesn't apply to accelerated investment incentive property: property acquired after November 20, 2018 and before 2025 that becomes available for use before 2028. Its first-year claim can be up to three times the normal first-year claim, reduced to two times for property that becomes available for use in 2024 to 2027.
• The half-year rule doesn't apply to reaccelerated investment incentive property either: property acquired after 2024 that becomes available for use before 2034, with the enhanced first-year claim phased out over four years for property that becomes available for use after 2029.
• Property on which CCA or a terminal loss was claimed before you acquired it qualifies for the accelerated investment incentive only if neither you nor a person you don't deal with at arm's length owned it before and it wasn't transferred to you on a tax-deferred rollover; otherwise the half-year rule can still apply to it.
• A new purpose-built residential rental is a separate class of its own, and for each tax year it qualifies throughout, you can claim an additional allowance of up to 6% of its undepreciated capital cost on top of the Class 1 rate, 10% in total.
• To be new, its construction has to have begun after April 15, 2024 and before 2031 (or, for a former commercial building converted to rental housing, the substantial renovation has to have begun in that window; renovating an existing residential building doesn't count), and it has to become available for use before 2036.
• The building, or part of a building, has to be in Canada and contain at least 4 residential rental units with a private kitchen, bath and living area, or at least 10 residential rental units, and all or substantially all of its units have to be rented or offered for rent for continuous periods of at least 28 consecutive days; units provided to travellers or vacationers don't count as residential rental units.

On a $420,000 building, the 4% rate works out to $16,800 for a full year before any first-year rule, falling as the undepreciated balance shrinks.

The recapture problem

What happens when you sell

When you sell the rental property for more than its undepreciated capital cost, the CRA recaptures the CCA you claimed (up to the total claimed). The rules, from the CRA’s Guide T4036:

• If the proceeds from the property you sell are more than the undepreciated capital cost (UCC) of its class, the difference is recaptured CCA, added to your income in full rather than at the capital gains inclusion rate.
• The proceeds counted are the lower of the sale price (minus selling costs) and the property's original capital cost, so the recapture can't be more than the CCA claimed.
• Selling for more than the original cost is also a capital gain on the amount above that cost.
• If no property is left in the class at the end of the year and part of the UCC hasn't been deducted, that remainder is a terminal loss, deductible from your rental income in the year of the sale.
• Unlike CCA, a terminal loss can create a rental loss.
• Selling a building for less than its cost gives no capital loss; the loss can only be a terminal loss.
• A rental property acquired after 1971 with a capital cost of $50,000 or more goes in a separate class, so its recapture or terminal loss is worked out on that property alone.
• Recapture can be postponed in some cases, such as replacing the property with a similar one, an expropriation, or a transfer to a corporation, a partnership or your child.

How the sale price compares with the original cost and the UCC decides which applies:

Recapture example

At a 40% marginal rate, the recapture alone costs $56,000 in tax. But you saved approximately $56,000 spread over 10 years by claiming CCA. The net effect is a tax deferral, not a savings: assuming the same tax rate.

Should you claim CCA?

When claiming CCA makes sense

When claiming CCA does not make sense

CCA decision matrix

Records to keep

The purchase agreement and assessment that support the land and building split, an annual schedule of each class’s undepreciated capital cost (UCC), receipts for capital improvements added to the class, and the sale documents used to calculate recapture and the capital gain. How the undepreciated capital cost is tracked is covered separately.

Capital improvements vs repairs

Repairs that restore the property to its original condition (patching a roof, fixing a furnace, painting) are deducted in full in the year you pay them. Improvements that make it better than it was or extend its life (replacing wooden steps with concrete ones, a kitchen renovation, new appliances) are capital costs added to a CCA class and depreciated over time. The CRA’s tests and examples are in rental property expenses you can deduct.

Alternatives to claiming CCA